Medical Savings Accounts in South Africa

Studies | Health | International

No. 234
Thursday, June 01, 2000
by Shaun Matisonn


Evaluating the Results: How Well Do MSAs Work?

Table IV - Data Used in MSA Spending Analysis

"MSA plans cut discretionary health spending by more than half."

MSAs provide powerful incentives for individuals to contain their health care costs, but some critics have challenged the ability of MSAs to control nationwide costs. Others have argued that if spending is reduced, it may come at the expense of needed medical services.16 To evaluate these and other issues, we constructed two data sets, one for individuals with MSA plans and another for those with traditional plans.17 (Table IV shows the number of families in each group by age in 1997.)

Do MSA Holders Reduce Discretionary (Outpatient) Spending? Consider first the impact of an MSA plan on costs for discretionary, or outpatient, expenditures for people at different ages. As Table V shows:

  • Relative to those in non-MSA plans, MSA families reduced their health care spending significantly, ranging from a 56 percent reduction for families in which the head of household is relatively young to a 47 percent reduction for the elderly.
  • On average, joining an MSA plan induces people to cut their discretionary spending by more than half.
Table V - Average Annual Discretionary Spending

"MSA holders are not healthier, as a group, than people with traditional insurance."

Do MSA Holders Substitute Nondiscretionary for Discretionary Spending? To the degree that cost control is desirable, the above results are quite satisfactory. However, the design of the MSA plan gives enrollees an incentive to seek care in ways that face no deductible rather than in ways that face a high deductible. Put another way, patients have an economic incentive to substitute "nondiscretionary" care for "discretionary" care wherever possible so that the insurer will pay the bill. Thus skeptics may ask whether the savings in Table V are real or are the result of cost shifting. The answer is that management controls can be built into the system to combat these potentially perverse incentives. And as Table VI shows, inpatient spending is lower, not higher, for MSA holders.

Do MSA Holders Forgo Needed Health Care to Save Money? Critics of MSAs sometimes contend that the reduction in spending reflects MSA holders' tendency to forgo appropriate health care. Refuting this criticism would require a randomized longitudinal study with far more clinical data than is currently available. However, a comparison of catastrophic claims under the two different health plans did not show more catastrophic claims under the MSA plan than under the non-MSA plan. Apparently MSA holders are not healthier as a group.

Do MSA Plans Attract Only the Young and Healthy? A common criticism leveled at MSA plans is that they are attractive only to the young and healthy and that they destabilize traditional risk pools. Critics claim this effect is exacerbated by guaranteed issue and community-rating restrictions.

Table VI - Average Annual Non-Discretionary Spending

Determining whether this is true required analyzing the data at different levels of outpatient spending to find the benefit received from the plan (MSA savings plus third-party reimbursement) as a percentage of incurred health care costs. The results are shown in Figure V.

"Individuals with high health care costs pay less out of pocket with an MSA plan than with traditional insurance."

For a traditional plan the amount paid by the insurer divided by the total amount spent starts at 80 percent, with a 20 percent copayment required of the insured. As the amount spent increases, various plan limits kick in and the fraction of costs reimbursed deteriorates. Under an MSA plan the pattern is very different.

Low spenders under an MSA plan receive benefits far in excess of their claims due to the savings that accumulate in their MSAs. As the amount they spend increases, their MSA balance decreases. Eventually the MSA is depleted and a self-payment corridor emerges in which no claims are paid by the insurer. Once individuals exceed the annual deductible, the percent of cost paid by the insurer increases dramatically and exceeds the 80 percent level offered by traditional plans.18

As Figure V shows, MSAs are attractive both to the healthy and the sick. The results are clear in the actual data for all age groups.

Figure V - Percent of Costs Paid by Insurance

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